Times and Faces Change in China

By: Clifford Coonan

A leadership shift puts Xi Jinping at the head of the Communist Party as China reckons with its economic destiny, writes Clifford Coonan ofThe National.

Xi Jinping was last week given a powerful mandate to rule the world's most populous country for the next decade.

Using that power to keep China's economy on track will be one of his most pressing concerns. And, not surprisingly, there are plans in place.

"The policy directions to address the key economic and social challenges have already been laid out in the 12th five-year plan and reaffirmed in president Hu Jintao's report at the party congress," says Wang Tao, an analyst at UBS.

Xi is the new general secretary of the Communist Party of China and the chairman of the party's military commission.

He takes over the helm of an economic colossus. China's GDP is $7.3 trillion, five times more than ten years ago, putting it second behind the United States. In 2002, it trailed the US, Japan, Germany, Britain, and France in sixth place.

Growth is slowing this year, prompting market players, analysts, overseas companies and ordinary people alike to wonder what Xi plans to do to maintain the country's monumental development.

Improving economic data in the run-up to the leadership transition took some of the urgency out of the debate about the need for reform, which could prove a double-edged sword for China's long-term prospects. Fourth-quarter GDP growth looks set to be stronger than the third quarter, as net exports seem to be recovering.

But longer term, the consensus is that restructuring the economy is necessary. China's growth miracle was built on the export market, which has slowed dramatically as the Eurozone struggles and the US remains sluggish.

There is a need to redesign the economy to boost the domestic market, which requires opening up state-owned enterprises and small and medium-sized companies to advance.

There is also a yawning financial gap between the very rich and the very poor, no significant social welfare system, and a hugely underdeveloped financial services industry.

Per-capita GDP has also increased five times from $1,000 to $5,500 since 2002, meaning China's supply of cheap labor, which once looked inexhaustible, is fast disappearing, as is the country's cost advantage.

GDP growth is on track to exceed 7.6% this year, and reach 8% next year, the trade surplus is set to rise visibly from last year, and investment is likely to outpace consumption in the next few quarters, says Wang.
That means the government is likely to focus on ensuring recovery now and deal with imbalances over time.

"We expect the government to address the issues of structural imbalance gradually in the coming years. In the next year, the immediate priority will likely remain keeping growth at a relatively rapid rate of at least 7.5%. To this end, we expect the current supportive investment and credit policies to stay largely unchanged," she says.

Other personnel changes in recent days have the financial markets asking questions, such as what policy effect will follow the replacement of the central People's Bank governor Zhou Xiaochuan, who lost his place on the Communist Party's 200-member central committee.